Highlights of Industrial Production (January)

Total industrial production, which also includes mines and utilities, eased 0.1% (est. 0.2% rise) after a revised 0.4% gain (prev. 0.9%); first decline in five months

Capacity utilization, measuring the amount of a plant that is in use, eased to 77.5% from 77.7%

Key Takeaways

The soft results for factory production, which may have been impacted by harsh weather in some parts of the U.S., reflected a 1.4 percent slump in the output of construction materials that was the biggest decline since December 2013. In contrast, production of business equipment and consumer goods increased.

While total industrial production was weighed down by a second consecutive decline in mining output, strength in the oil-and- gas industry helped push the mining index up 8.8 percent from a year ago.

Other reports indicate manufacturing remains on solid ground. The Institute for Supply Management’s index showed factories expanded more than forecast in January and near the fastest pace in more than 13 years.

Lower taxes and a pickup in overseas markets are spurring business investment. Steady hiring, rising home equity and elevated confidence also indicate sustained demand from consumers, which will boost sales of durable goods.

The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up 75 percent of total industrial production, accounts for about 12 percent of the U.S. economy.

What Our Economists Say

Manufacturing was impaired by severe inclement weather in parts of the country at the beginning of the month. At the same time, the colder-than-usual temperatures boosted electric and natural gas production, which lifted utilities output. Fast-forward the weather impact, industrial output is estimated to pick up this year, supported by the tax reforms and a more optimistic economic outlook in general, which in turn will further increase capacity constraints and support business investment growth this year.